P.A. Resources Bhd’s (PA, 7225) 9MFY24 achieved 92% of our FY24 full year’s forecasted earnings. As such, we upgraded our FY24/FY25/FY26 earnings projections by 29%/4%/3.5%, due to (i) its near-term capacity ramp-up; (ii) ASP upward revision; (iii) launch of new products with better margins. BUY with a TP of RM0.50 based on 13x PER over FY25 EPS of 3.9sen, justified by the management’s execution track record and earnings growth potential.

In the near term, PA’s earnings growth outlook will be driven by (i) the recent completion of its extrusion capacity expansion plan; (ii) upward revision in average selling prices (“ASP”); (iii) successful launching of a new product. PA has since ramped up its capacity to 3,200MT/month since Apr-CY24 from 2,800 – 3,000MT/month.

From the recent spike of LME Aluminum prices in April by 13% MoM, we anticipate an upward price revision by Jul-CY24 (1QFY25) onwards. Meanwhile, PA has successfully launched a new product (mainly used for the palm oil industry) that is expected to deliver better margins. As a result, PA should deliver commendable earnings growth over the next few quarters.

Looking ahead, we are optimistic on the (i) new plant expansion that will more than double the group’s capacity within 12 – 18 months upon the completion of land title transfer; (ii) upgrading of an existing fabrication line. Phase 1 of the plant expansion will add 2,000 – 2,500MT, while the total plant capacity across the different phases will eventually lift the group’s extrusion capacity to 7,000 – 10,000MT. As for the automated fabrication line upgrade, this will enable PA to enjoy cost savings and recoup its investment within 1.5 years. Underpinned by these initiatives, PA should deliver multi-year earnings growth in a sustainable manner, especially with recent productive business discussions with reputable multinational solar companies.

Leveraging on PA’s impressive execution track record and long- term capacity expansion plans, we see PA as a potential beneficiary of the current anti-dumping measures and First Solar’s robust backlog of 78.3GW until CY30. As such, we deem PA’s current valuation of 9.8x FY25 PER as a decent value proposition.

Source: Rakuten Research - 16 May 2024

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